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Already reeling after admitting it unfairly targeted conservatives, the IRS suffered a new setback Tuesday when its internal auditor released a report showing the agency spent $4.1 million on a lavish conference in California in 2010, including two free drinks for every attendee, and upgrades to suites for more than 100 employees.

The IRS also violated its own tax rules by letting some local California employees stay at posh Anaheim hotels without requiring them to pay taxes on the per diem expenses.

And the inspector general who performed the audit said the IRS couldn’t even provide documentation to prove that the $4.1 million price tag included all of the costs the agency incurred to host the conference, which was meant to be for leadership training.

“We could not obtain reasonable assurance that this amount represents a full and accurate accounting of the conference costs. The IRS was unable to provide documentation to support all costs associated with the conference,” J. Russell George, the auditor, said in his report.

The revelations came the same day that tea party groups targeted by the IRS testified before Congress, saying the invasive scrutiny signaled a deeper cancer of a government that has lost touch with the freedoms the country was founded on.

“This was not an accident. This is a willful act of intimidation to discourage a point of view,” Becky Gerritson, president of the Wetumpka Tea Party in Wetumpka, Ala., told the House Ways and Means Committee.

Ms. Gerritson and the leaders of several other tea party, conservative or pro-life groups detailed their travails in trying to win tax-exempt status from an IRS that, according to another report from Mr. George, was slow-walking their applications and asking inappropriate and intrusive questions — including what prayers they were saying, who their volunteers were and, in some cases, who their donors were.

IRS acting Commissioner Danny Werfel will testify to the House Committee on Oversight and Government Reform on Thursday about the latest reports of wasted taxpayer money, and will likely also field questions about the progress he’s made in getting to the bottom of the conservative group scrutiny.

He took the helm at IRS last month after President Obama tapped him to clean up the agency.

Much of the focus in the IRS scandal so far has been on whether the IRS targeted conservatives specifically, but the group leaders who testified said the nature of the inquiries from IRS agents deserves scrutiny, too.

Kevin Kookogey, founder of the group Linchpins of Liberty, which teaches students about conservative political philosophy, said when the IRS asked for the names of those his group mentored, it was effectively asking for the names of minors — something that he said could have opened him up to a lawsuit from his students’ parents.

“That the IRS would ask to know the identity of those students is unbelievably, unconscionably chilling,” he said.

Mr. Kookogey said his group’s application to gain status as a tax-exempt educational organization has been pending for 29 months, and the wait has cost him a $30,000 grant from another nonprofit that would only contribute to a group that had earned IRS status.

Democrats said the IRS was overzealous in targeting the groups, but cautioned not to let the stories get in the way of finding out the facts about what happened.

“None of your organizations were kept from organizing, or silenced. We’re talking about whether or not the American taxpayers will subsidize your work. We’re talking about a tax break,” said Rep. Jim McDermott, Washington Democrat.

He said the IRS‘ actions were “inept, stupid” — but not an Obama administration plot to go after conservatives.

“Republicans are looking for a conspiracy where there isn’t one,” he said.

Rep. Paul Ryan, Wisconsin Republican, said Mr. McDermott sounded like he was blaming the groups, not the IRS, for the intrusive scrutiny.

Coupled with the latest report detailing waste of taxpayer money, the IRS appears destined to remain in the headlines for some time.

Mr. George’s report found that the agency spent nearly $50 million for conferences between 2010 and 2012, but the one in Anaheim was the most expensive, with an average cost of $1,584 for each of the 2,609 participants.

The IRS said in its response that it has already cleaned up some of the abusive practices.

“During the past three years, the IRS has put in place an extensive series of procedures with regard to conferences,” Pamela J. LaRue, the agency’s chief financial officer, said. “Clearly, a conference like this from three years ago — and many of the instances described — would not take place under our expanded and strengthened oversight process.”

The report comes at a time when most agencies are tightening their belts in response to the budget sequesters which took effect in March, and have forced across-the-board cuts and employee furloughs.